Welcome to the WMS Industries second quarter results conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. (Operator instructions) As a reminder, this conference is being recorded Thursday, January 29, 2009. It is now my pleasure to introduce Bill Pfund, Vice President Investor Relations. Please go-ahead sir.

Thank you operator. Good afternoon and welcome to WMS Industries’ conference call to discuss our fiscal 2009 second quarter results With me are Brian Gamache, Chairman and Chief Executive Officer and Scott Schweinfurth, Executive Vice President, Chief Financial Officer, and Treasurer. Orrin Edidin, our President has been in London this week heading our presence at the International Gaming Expo trade show or IGE, or perhaps better known under its former acronym of ICE. Although it has already been a long day for him, he is joining us to answer questions following our prepared remarks. Before we start let me review our Safe Harbor language. Our call today contains forward-looking statements concerning the outlook for WMS and future business conditions. These statements are based on currently available information and involve certain risks and uncertainties. The company’s actual results may differ materially from those anticipated in the forward-looking statements depending on the factors described under Item 1, Business Risk Factors in the company’s annual report on Form 10K for the year ended June 30, 2008 and in our more recent reports filed with the SEC. The forward-looking statements made on this call and webcast, the archived version of the webcast and any transcripts of this call are only made as of this date January 29, 2009. Now let me turn the call over to Brian.

Thank you Bill, good afternoon everyone. This afternoon we reported year-over-year quarterly revenue growth of 12% to $178 million, net income growth of 48% to $24 million, inclusive of a $5 million pre-tax benefit from the cash settlement of a trade mark litigation and 70% growth in quarterly cash flow from operating activities to $53 million. These results achieved in the face of the overall economic challenges that we have all been aware of highlight our continuing ability to deliver steady growth in revenues earnings and cash flow. There are clear signs that WMS has the right Blueprint in place and the ability to execute on our strategies that develop products that casino customers and their players’ desire. They are also demonstrating the powerful impact of our success in executing on our operating improvement in capital efficiency initiatives. The 70% increase in quarterly cash flow from operations and the significant progress in improving operating asset and liability efficiency boasted our already strong balance sheet further strengthening our foundation to support ongoing product development in other growth initiatives. This consistent progress in achieving improvement in operating excellence is creating additional value for our shareholders. In particular, I would like to note our gaming operations revenues increased 16% and growth profit rose 20% year-over-year driven by 8% growth in our average installed base and 10% growth in our average daily revenue, reflecting the continued strong play levels for our unique products. Our great content and innovative products also lead to continued new product units sales growth worldwide. North American shipments increased a healthy 8% and our international shipments grew 4% year-over-year. As expected our average selling price rose 8% to $13,686 reflecting demand for premium priced products, particularly our new network ready Bluebird2 gaming machines, which accounted for approximately 17% of the…

Thanks Brian and good afternoon everyone. Our record financial performance is directly attributable to our continued successful execution against the five key priorities that have and continue to support financial growth. These priorities are, one, grow our North American market share by innovating differentiated products. Two, grow our gaming operations business, while investing our capital deployed in that business in a manner that optimizes return on investment. Three, continue expanding our international business. Four, further improve gross profit and operating margins and five, increase cash flow. The financial results discussed in our earnings release highlight progress related to each of these priorities, so ill focus my comments on a few other highlights. First, remember that our revenue base is diversified across the gaming universe both geographically and by customer. Looking at our first six months, about 39% of our revenues are generate from the recurring revenue base of our gaming operations business which as Brian just noted is doing well even in this challenging environment due to the strong player appeal of our high earning games. Game conversion kits parts a new game sales account for another 8% of total revenues. The remaining 53% of revenues come from new unit shipments. Of these shipments international customers in aggregate accounted for 37% of first half in fiscal 2009 with demand broadly based across a wide range of markets from Latin America to Asia to Western and Eastern Europe. Additionally, about 25% of our new unit shipments are the Native American tribal customers, another well diversified customer base. Nevada casinos in total represent less than 10% of new unit shipments. The remaining 28% are the casino operators in Canada, Mississippi and Louisiana, Atlantic City, Pennsylvania, Oklahoma, and the Midwestern River Belle markets. With our continued revenue growth and margin improvement, we are…

Thanks Scott. As we continue pursuing the operating priorities that Scott mentioned, each of which is contributing to our near-term success, I want to conclude by also reviewing those efforts that support our long-term vision. Ever since we began articulating our three part technology improvement plan some seven years ago, we have been totally committed to creating, licensing, and acquiring intellectual property in advanced technologies to strengthen our competitive capacities to provide the sustainable growth opportunities in a next evolution of the gaming industry with the advent of network gaming. Unlike some WMS has pursued a development path that commercializes a unique server foundational product ahead of the full adoption of worldwide network gaming. From the great success we have achieved with the foundational technologies deployed in our Community Gaming, Sensory Immersion, Transmissive Reels, and most recently Adaptive Gaming participation platforms for the launch of our Bluebird2 fully digital gaming cabinet, WMS’ approach has never wavered. The success of our product has enabled us to deepen our penetration across the casino floor and further differentiate WMS from our competitors. We result this testimony to the benefits of the company’s bank-by-bank limitation plan focused on new products at each step along the technology path and we are now approaching the threshold for entering the next round of network gaming. In December 2008, WMS achieved two significant milestones that highlight our continued progress to add systems capabilities to our product portfolio. First, our agreement to play customized Star Trek games at Harrah's properties. These games featured unique system capabilities allowing members in Harrah's total rewards program to log on to Star Trek games at Harrah's properties really by inserting their total rewards car into the player tracking reader on the gaming machine. This feature is made possible through the system inter-phasing of…

Thank you. (Operator instructions) Our first question coming from the line of Joe Greff, J.P. Morgan

Hi, guys, how are you?

Hi, Joe.

Hi, Joe.

First question for you. I think there might be some confusion. I’m getting some emails here, but you are reaffirming full year revenue guidance though the composition of that has changed?

Right.

Product sales are a little bit below where you guys had talked about earlier and that –?

We said that the guidance we gave, Joe, would be either at or low end of the guidance or slightly below.

Okay.

But that will be offset by the gaming operations accelerating revenues.

And that’s –?

Obviously, as you know that’s a higher margin business. So, the flow through in that additional revenue should be accretive.

Right. And that’s on the win per unit per day and not on units, on the game up –

No, it’s not. Exactly.

Okay. And based on what you see so far in January and what you are expecting in terms of mixed change, do you think that the levels that you did last quarter can carry through the next couple of quarters on a win per – unit per day?

The answer is, we are very optimistic based on the January result we’ve seen thus far. In addition, we have got some very exciting new products coming out this second half of the year POWERBALL Power Seat, Reel and then compete to win, Big Event, Poker, Time Machine. We have two Wizard of Oz transmissive products. So, we have a fully array of products to be launched in the second half and we are already at the upper end of our guidance on the footprint. So, we think that will board well for both the footprint and yield particularly in the fourth quarter.

Okay. Great excellent. And you also reaffirmed your EBIT margin guidance?

Yes.

So, do you think by the end of June you at a sustainable 20% EBIT margin level?

That’s an operating margin, Joe that we reaffirmed.

I’m sorry, operating margin. Yes.

Yes. We’ve been shooting for that 20% margin for a number of years. I’m looking at Scott because it’s something we talk about every couple days. I think we’ll get there in the coming quarters and that’s going to be a combination of additional operating excellence, our process improvements in higher volume. And I think we’ll get there in a very close range of achieving these goals.

Okay. And then one housekeeping item for Scott. Your EBITDA, you reported EBITDA for the quarter, does that $51.9 million, does that include the patent settlement?

No, because the patent settlement is down in interests and other income.

Okay. Great, thanks guys.

Thank you.

Our next question coming from the line of David Katz, with Oppenheimer. Please go ahead.

Hi, good afternoon.

Hi, David.

So, my question is mostly about your SG&A. And I guess that’s one of the line items I spent a lot of time trying to figure out when the leverage to that really kicks in. I know that R&D has continued to ramp up and the fruits of that investments are obvious. But on the SG&A side, if you could just talk about how you see that rolling out into the future and to the degree that you can discuss beyond the end of the fiscal year that will be helpful also?

Okay. I think the guidance we gave on the SG&A, David, is still consistent with where we think we are going to end the year. I want to just reiterate that the first quarters of year Q1 and Q2 are traditionally our slowest two quarters. And as we ramp up in Q3 and Q4 as a percentage of revenue, that number will decrease. So, I think the guidance we gave on the August call, a year ago is pretty consistent. Dave are you still there?

Yes.

Okay.

I’m all set. Thank you.

Okay.

Our next question from the line of Steve Wieczynski with Stifel Nicolaus, please go ahead.

Hi, good afternoon guys.

Hi, Steve.

A follow up on that SG&A question. You talked about bad debt expense increase in the release. Can you go into that a little bit in detail?

Sure. I think quarter-over-quarter was up by about $0.5 million, and that nearly represents, let’s say taking a bit harder look on what’s going on in the economy.

Again we are not saying that’s a hard number. We have been conservative as Scott said. And when you look at our last several years we were less than one half of 1% on the bad debt expense. So, we’ve managed our bad debt here pretty carefully, and we don’t expect that problem going forward.

Okay. And there was a 15% jump there in daily fee games owned by casinos. Anything we should be looking at there?

No. I think that’s just based upon the popularity of the titles that we head out for that particular pricing model.

Okay. Got you. And then finally, Brian, you’ve done a fine job in terms of where you have gotten your product sales margins but you are now there that creeping about 50%. Where do you expect those to go over the next couple of years?

Well, again I think I have said previously that we would not be satisfied until we got to the mid 50% range, which is where some of our large competitors have traditionally been. And we think that we could probably get to those levels sometime in fiscal 2010 given the leverage we have in our pricing and also the progress we make in our supply chain areas. So, that’s something we have in our sights. And I think we can get this sometime in 2020.

Okay. Great. Thanks guys.

Could I just correct one thing? I had now gone back and looked at the EBITDA, and the question that Joe Greff asked about the settlement of the trademark, it was in EBITDA. So, the tax affected number would be $3.5 million sitting in the EBITDA. And now we’ll take the next question.

Our next question from the line of Celeste Brown with Morgan Stanley. Please go ahead.

Hi, guys, good evening. Two questions for you. First, how are you thinking about using your strong balance sheet to help your capital constrained customers’ and I guess how would that – how could we expect to see that flow through the revenue line? It’s not traditional straight out, part or –?

It’s good question, Celeste. I think the – we are a mid-Western conservative based Company, and we have a very strong feelings about having a strong balance sheet. But that being said, when there are solid customers with a little bit of a pinch and don’t have the capital to spend who want our games, we will look at flexibility in our pricing mechanisms and we’ve got several things we are analyzing now, but we are never going to put ourselves in jeopardy. And the deals we are looking at would be very solid deals that would be incremental in our ability to gain market share floor space. So, we think it could be a very significant part of our strategies here in the last half of ’09 and going into ’10. And it’s something again we are going to look at restrictive buckets of risk that we would take along these areas, but we think that the kind of customers we are talking about is very little risk and then it is something we can do to add incremental revenue.

And how it – I guess it’s preliminary, but how would those units flow through? Would we see them show up in participation or a purchase where we see the units and the revenues up front, but the cash flowing later?

Right. There are several things that we are looking at, Celeste. One of the things, would just be merely, what I’ll say terms related and so, you may see – that impact would see DSOs going up some because we would be giving customers greater terms to pay the invoices over. We are also looking at our financing leases and under our financing lease that would have some what the same effect where we would be able to record the revenue that we wouldn’t be receiving the cash immediately, we would be paid over whatever the term lease may be. We’ve looked at doing some operating leases. The operating leases would show up as capital in use of capital in the gaming operations business and it would sit on our balance sheet in our gaming operations capital and we would be getting lease payments over a period of time.

I want to just interject here for a minute Celeste. This is a few thousand units. We are not talking about going crazy here. This is a few thousand units that helps our more well capitalized customers get over the hump here and we will do that because of our relationship with them and again our ability to gain more presence on their floors.

I wasn’t concerned that you would stress your liquidity. So, I was just trying to understand how we expect to see it flow through. And then the second question and you may not be willing to comment on it, but it’s a big boo ha, ha about the shares that some of the Redstone and we haven’t heard anything for a while. Can you give us an update as to your stand there if there are any plans to purchase those?

We do not comment on National Amusements investment strategies. We have been in contact with Mr. Redstone’s advisors and we read the same newspapers as you do. We have not received a indication of what their plans are related to WMS shares but just to remind everybody, we have an $85 million buy back plan in place and we obviously look at every opportunity presented to us to continue to build shareholder value.

Thank you.

Okay.

Our next question from the line of Bill Lerner with Deutsche Bank. Please go ahead.

Hi, guys.

Hi, Bill.

Couple of questions. One, regarding the mix, I think you said 17% of your new year mix this year was Bluebird2 and you are guiding or you expect the full year to come in at – the full fiscal to come in at 35% or maybe that’s where you would be in the second half?

That’s the open orders, Bill, the 35%. Just to give you a little color on that. That’s broken off by 47% in North America and the rest again it gets down to 35% globally. But that’s way above the 15% to 20% we had budgeted for totally in our fiscal ’09. So, the response we are getting for Bluebird2 is beyond any of our expectations. So, we are very thrilled. And again given the higher price point in the higher profitability in these games it could only be a good thing.

Okay. And so that’s really where I was going. Guys, and may be this is a North American question, this depends on geography, but the premium in ASP is like 19%, 20% versus Bluebird 1%, may be this is again North America?

That’s about right.

Okay. All right. And then I guess couple of other ones. Game ops you guys grew sequentially, you grew margins I think it was 90 basis points. But interest rates are zero. So, is that all yield guys, or is there something else going on? I guess the question is how an interest rate environment like this unfavorable to game ops do you actually grow your margins by nearly 100 basis points or 82% there?

We are different than our largest competitor and I think we’ve only had two jackpots that have been one over the term that payout over a period of years. So, movements in interest rates have absolutely no impact on WMS’ result.

Material impact?

Yes, because it’s such a small piece. So, yes, the increase is attributable to better performance.

Okay. That’s great. And then just qualitatively what are customers asking for? Can you give us a sense of or sensible behavior, you guys have an IGT obviously grew game ops or participation units they are certainly relative to our expectations, higher or more than we anticipated. But is it – what are people saying? I mean are they saying we want to keep the floor fresh, we have no capital budget to put in participation games or are they saying we are going to wait for some period of time, we think the games are fresh even though they are – anything qualitative that will help us get a sense of what your sales guys are experiencing, it will be helpful?

I think that the wider progressive percentage of point infield is still a challenge. It’s always going to be a challenge, but when you have a product like Wizard of Oz and Top Gun and other games that we’ve done so well. It’s easier to gain that port space. We have, again people coming out if G2E are very excited about the reel to win compete to win product, they are excited about the POWERBALL, power seat products. So, we’ve got great momentum. And I think that when you look at the power of our earnings of these games, we have over 1000 Wizard of Oz games out there today, and that’s beyond anything we ever thought possible. So, and they are staying out there. So, I think it’s really about the strength of the content and if the games continue to hold up, people will look to the participating games to augment some of their capital issues to keep their floors fresh and keep their customers happy. So, that’s has worked a little bit in our favor.

Okay. And the last one for me. Brian or Scott I guess, free cash flow for the first six months or – it looks like you are run rating about $200 million of free cash flow and what everybody is seeing as the worst environment in memorable history of course for your business and many other things. So, that in the normal environment obviously will grow. What do you with free cash flow? Obviously, you can buy back stock and you have very little, relatively speaking very little debt to consider. Where there any gaping holes on the technology side that we may be – that we should be thinking about or what else you do with cash –?

That’s a great question, Bill. I think our balance sheet continues to grow stronger every quarter and the cash that we are accumulating. And that $200 million run rate that you mentioned is an ambitious one, but we think eventually we’ll get there. That being said, there are a lot of things out there from an R&D stand point, from a technology standpoint, from a licensing standpoint, from a tuck-in acquisition standpoint that we could absolutely pursue in order to grow our revenue stream 3 years, 4 years, 5 years from now. When you look at the development that we have done over the last 5 years, it’s really come to fruition now. The types of platforms, the complicated platforms that we bring to market, the reason we are doing so well, is they are unique and differentiated and they take years to incubate. So, I’m very comfortable saying that my first choice of our cash is to continue and invest it internally and then obviously on opportunistic – when the opportunity arises to buy back stock prudently, and then other sources whether it be acquisitions or whatever it be there. So, we’ve got a lot opportunities out there to continue to stroke the pipeline of product innovation and I’m very excited about that.

Okay. All right. Thanks guys.

Our next question from the line of Steven Kent with Goldman Sachs. Please go ahead.

Hi, good afternoon.

Hi, Steve.

Hi. Two questions. First, did you see any trial off in orders for games as you ended calendar ’09? It doesn’t really sound that way, but I just want to once more make sure that you are not seeing that weakness that we are seeing in just about every other consumer segment. And then the second question is just on R&D, just the dollar amounts, Brian, they keep on increasing and I’m just wondering if there are specific project or initiative that you are spending that money on that may be you could share with us or is that just continuing to focus on game creation?

All right, let me take the second question first. And that is there is a number of initiatives, there is a number of applications, there’s a number of different technology platforms that we are developing whether it be the company is featuring or the portal technology that we believe are essential for giving those value propositions of the customers. And again these things all take time and headcount and this is nothing we hadn’t anticipated. So, I think going back to the original question, the $100 million guidance that we gave as a percentage of revenues is still good. As I answered the first question about SG&A to David Katz, this too will smooth out in Q3 and Q4 as a percentage of revenues. We think we said today at the high end of 13% to 14% range, we’ll still be in there. And again we think that’s the best return on capital we can give to our shareholders’ because we have proven that we can create that R&D investment into future revenue stream. I think that’s the best way to build shareholder value. Did I answer your question, Steve?

Yes, you did on the R&D, but again did you say anything about the trail-off in the orders?

The trail-off in orders, we didn’t see it in October. We did see it after January 1. Typically most of our customers are around 12/31 fiscal year, and we would expect to see a cluster of orders, the first couple is in January because like every company they want to make sure when they have a capital they don’t lose it down the road. We are seeing a little bit more conservatism in the release of calendar ’09 capital and I think that’s why you see the backlog is lit bit slightly less than it was a year ago, but we anticipate that customers are being apprehensive in releasing the capital to their confident that the consumer sentiment in the economy is not going to get worse than it is today. A majority of our customers are still doing okay. Some of our customers are struggling, but again a majority of our customers out there are still growing share and revenues. So, we hope that that apprehension declines here in the next couple of weeks. But, it’s not something that we have seen before because typically the first part of January we are very busy writing orders and hope that’s going to pick back up here shortly.

But that’s being more than offset as you said before by the shared revenue participation games?

Yes, I think in normal situations, Steve, we would be raising guidance today given the first half of the year we had. But unfortunately we are looking at the product sales as little bit of a bump in the road here, but we think because of the quality of our content in the products and the demand that we have coming out of G2E and ICE, this is a short live bump in the road.

Okay, thanks, Brian.

Our next question from the line of Ralph Schackart with William Blair. Please go ahead.

It’s Ralph Schackart. Good afternoon guys.

Hi, Ralph.

Few questions. I’m sure you are waiting for all the day to come into the quarter, but let us know the big picture how ship share trended in the quarter, up, down year over year?

I think my gut tells me Ralph, because we won’t know until two other competitors announce. My gut tells me we are in the 23%, 24% range for the quarter. But again that’s just our internal instincts. I think we are making progress particularly in the wheel spinning realm. 27% of our shipments over the last four quarters have been wheel spinning product and with our Bluebird2 mechanical reel coming out in Q4, we think that that’s going to be another opportunity for us to gain market share accretion. So, I think that we are still gaining market shares and albeit and the time is very difficult, we are getting a good percentage of our customers allocations.

Right, that’s helpful and one more if I could. Brain you touched on this earlier about interest in new games. May I spend a little bit of time on the new time machine game little bit different (inaudible) if you will from sort of the action, thriller and set game, can you talk about the pipeline and the new concepts that you showed at G2E and some further discussions I’m sure you had with customers beyond that, how they are thinking about the new games coming up?

Ralph, I’m going to ask Orrin Edidin to answer this. Orrin, can you jump in?

Yes, Brian. The category strategy, form factor strategy has really been paying off dividends when we talk about Transmissive Reels, adaptive gaming, sensory immersion and the like, and we are continuing to exploit those form factors, while introducing entirely new categories. And then over the remainder of this fiscal year, and you mentioned a couple of them time machine, that’s a wider progressive game in the sensory immersion format. MONOPOLY Grand Hotel, which is a bigger style game, it’s a three-room mechanical on Bluebird2, that’s also widely progressive. Over the remainder of this quarter, we are also bringing out a Jackpot Party Keno, Multi-game another monopoly standalone game, a new form factor, which will be on reel – compete to win, which is sort of a nationwide tournament game on a widely progressive format coming out in early Q4. In addition to a new poker game in the bigger event format. So, it’s a relatively deep portfolio on the participation side that – sure we will continue to grow that base no doubt over the remaining months of this fiscal year.

And the unique thing, Ralph what Orrin just mentioned is there’s nothing that’s me-too in all those two products. Those are all differentiated out of the box thinking product. So, they are going to appeal to a broad base of customers out there. So, that’s why when I was asked the question early about, is the gaming ops going to benefit in footprint and yield and the answer is, yes. We think it’s going to affect both parties and have a significant impact on our revenues particularly in Q4.

Right. But you feel pretty good that as you are moving into new direction on the content side out of action, thrill that there is good initial response and the roll out hopefully should be pretty consistent with previous products?

One other things that we do pretty well here, Ralph, is we benchmark through market research all of our product launches. We have beta sites and so forth, and the products that Orrin mentioned, I just saw the report that they are testing very, very well and have performed above our expectations thus far for the first several of these product intros that are out there on test. So, yes, I feel very good about the playing – to continue to give the value to our customers.

Right. That’s helpful. Thanks Brian.

Our next question from the line of Todd Eilers from Roth Capital Partners. Please go ahead.

Hi, guys, how are you? Just one question related to the international business. I think he has mentioned the two large contracts, one of which you signed. Can you tell us whether you have included one or both of those pieces of business in your fiscal ’09 guidance?

Yes. One of them has been partially shipped and we’ll continue to ship into Q3 and the other is still I believe pending. So, that is not in our guidance.

Okay. And if you were to sign it, do you anticipate to ship in fiscal ’09 or will that there be more of a fiscal 2010 event?

Obviously, the longer it takes to get it in the barn here, the least likely it is to ship in this year. So, we’ll update you more, but probably late Q4 if it all in ’09, but we got our fingers crossed.

Okay. And then aside from the two large contracts, can you maybe talk a little bit more about the international markets?

Sure.

What you are seeing out there have started to see a little bit of slow down somewhat to the domestic markets and if so which markets are those, and just in general what are your thoughts?

We still have plenty of opportunities internationally. And we believe that again internationally, our goal right now it’s about mid 30% of our shipped share over the last several quarters and we want to get that up to 50% of our box sales over the next several years. So, we still believe that the opportunity for WMS to expand its revenue streams in international profitable markets is very high. With that being said, I believe Western Europe and Asia, which have typically been very good areas for us have seen a slow down since the fourth quarter of calendar ’08. We are starting to see very good results in South and Latin America, Central America and Eastern Europe. So, there are certain spots that are equaling the weak spots of strength. So, we continue to look under every rock out there and we are continuing to think that although the international continues to be challenged, we will have a very solid second half. I heard today we had a very good ICE show and the results from that will be very typical to the second half of this year. And I think that we will make our goal albeit in a difficult manner that we had established.

I would say another thing is we have been surprised at the initial acceptance of Bluebird II international market because for the most part that group isn’t thinking about network gaming at this point in time. But there’s been great interest –

– in typically markets that is very price sensitive. Certainly the oil price resists their product, that’s very encouraging as well.

And Brian, we would be less not to mention the reception we’ve had to the Orion product at the show with the new enabling operating system in Twinstar2 platform. The feedback has been terrific and it is building backlog there as well.

Great. Thanks Orrin.

Okay. Great, thanks guys.

Speakers’ there is no further questions at this time, you may continue with your presentation or closing remarks.

Operator, thank you very much. Thank you for joining us on the call today. We look forward to reporting our additional progress on next call, which we will have discussed our March 2009 quarter results. Have a nice evening.

Thank you ladies and gentlemen this does conclude the conference call for today We thank you all for your participation and kindly ask that you please disconnect your lines. Have a good evening everyone.